Cabinet divisions over immigration policy spilled into the open on Thursday when Vince Cable, the business secretary, claimed that the government target of reducing net migration was dishonest and could cause "enormous damage" to the economy.

Cable's comments were published ahead of the Liberal Democrat leader and deputy prime minister Nick Clegg giving his first speech on the subject since joining the government. In Clegg's address on Friday, he will formally announce the coalition's intention to introduce cash bonds to discourage people from overstaying on their visas, and double fines for employers who knowingly take on illegal workers.

Speaking to parliamentary magazine The House, Cable disowned the headline policy of reducing net migration to "tens of thousands" by the next election, saying: "It isn't government policy, it is Conservative policy. And it's also not true, because that policy purely relates to non-EU people. We have obviously no control over the European Union and that is actually where much of the movement comes. And a lot of the public anxiety which is experienced in byelections and elsewhere has actually been about people from eastern Europe."

Cable also warned of the damage that could be done by the policy, claiming that overseas students – and skilled researchers and other workers from countries such as India and China – are already being deterred from coming to study in the UK because they've read that "Britain is closed".

If the policy was attainable, Cable said, "enormous damage would be done, notably through overseas students, which is one of the biggest components, actually.

"We want overseas students, they are good for us, they are not bad for us," he continued. "They bring in lots of money. We want to have lots of visitors from all over the world coming here without hassle, an easy flexible visa system … we have lots of highly specialised people – in engineers, top managers who we need in our companies – and they've got to be able to come and go freely otherwise we are not going to be able to compete internationally."

The Lib Dem business secretary, who is the most frequent and high-profile critic of his party's coalition partners, even mocked the policy, adding: "When you think about the logic of it: net immigration means reducing the number of people coming in or increasing the number of British people emigrating. Is that the policy objective? I don't know …"

In excerpts from his speech released on Thursday night, Clegg attempts to navigate the sensitive line on immigration by insisting that he wants Britain to remain "open and tolerant", but saying that there are too many abuses of the immigration system and that it is not well enough enforced.

"The coalition's priority continues to be growth and building a stronger economy," he says. "I'm clear that well-managed immigration is a key part of that."

However, seizing the theme "tolerant Britain, zero-tolerant of abuse", Clegg says that the Home Office has been asked to work up details of a system under which people applying for visas from "high risk countries" would be asked to pay a "bond" deposit, which they would only get back when they left the UK.

Acknowledging the potential difficulties of the scheme, Clegg adds: "The bonds would need to be well-targeted – so that they don't unfairly discriminate against particular groups. The amounts would need to be proportionate – we mustn't penalise legitimate visa applicants who will struggle to get hold of the money.

"Visiting Britain to celebrate a family birth, or a relative's graduation, or wedding, should not become entirely dependent on your ability to pay the security bond."

On Monday, the prime minister will make a keynote speech on immigration, expected to focus more on restricting access to public services for immigrants.